Milan-based Est4te Four is developing a 1.2 million-square-foot commercial project along the Brooklyn waterfront.
By Daniel Geiger
Photo: NBBJ
Rendering of Red Hook Innovation Studios.
The Italian company that has plans to develop a sprawling office complex along the Red Hook, Brooklyn, waterfront is seeking a partner willing to invest $100 million or more in the project.
Milan-based Est4te Four has hired Cushman & Wakefield, led by Bob Knakal, Cushman’s chairman of investment sales, to market a 49% stake in the development, called Red Hook Innovation Studios. When completed, the project would be the biggest block of newly constructed office space outside Manhattan to be available for rent. According to previous reports, Est4te Four plans to spend $400 million to create the five-building complex, which would total nearly 1.2 million square feet. The project likely will be built in phases over five years and could break ground next year, when leases at the existing properties on the site expire.
The developer, which also has projects in Los Angeles, London and Milan, spent about $61 million over the past three years assembling six adjacent properties located west of Ferris Street, from Coffey to Sullivan streets, in Red Hook. The sites are occupied by either warehouse properties or parking lots.
Est4te Four plans to preserve and restore 202 Coffey St., a two-story, approximately 170,000-square-foot warehouse that’s over 100 years old. The rest of the site would largely be rebuilt. The company is expected to erect four office buildings of up to seven stories. Est4te Four would also create park space, a promenade along the water and retail space at the base of the buildings.
Red Hook Innovation Studios will be designed to appeal to creative, fashion and tech businesses, which increasingly are calling Brooklyn home. Similar commercial destinations in the borough have been successful in drawing tenants. Just south of Red Hook, for instance, Industry City, a 6 million-square-foot collection of former industrial buildings in Sunset Park, has attracted big names like Time Inc. Meanwhile, the owner of Dumbo Heights, a group of contiguous buildings joined by sky bridges in Dumbo, has nearly filled the complex with several tenants in recent months.
Near its big office project, the Italian company is in the process of converting a former six-story warehouse at 160 Imlay St. into a 70-unit luxury condominium. Patty LaRocco, a broker with Douglas Elliman who is handling sales for that project, said that more than 60 of the building’s units are in contract, with prices averaging more than $1,100 a square foot–among the highest ever netted for residential space in the neighborhood.
Bad economic news just prior may be part of the reason why China took the steps it did on its currency, the renminbi. On August 8, China reported its exports fell 8.3% in July. Three days later, China loosened its hold on the currency, causing the yuan’s value to drop immediately.
At the start of the week, the price of a Chinese yuan (CNY/USD) was $0.161. By Friday, it was priced at $0.156, a drop of 3% to where it was trading three years ago.
According to Luke Oliver, U.S. Head of Capital Markets at Deutsche X-trackers, there are three reasons why China needed to devalue its currency.
“One might be the fact that its exports have become less competitive,” said Oliver. “Over the last year, we’ve seen that… China against a basket of currencies has actually strengthened 12% over the last year. That’s a pretty big headwind for Chinese exports.”
While goods are having a tougher time leaving China, it’s a different story with money, notes Oliver, whose team is responsible for three China ETFs in the U.S. with a combined $790 million in assets.
“Secondly, the strong Chinese renminbi seems to encourage outflows from China,” Oliver said. “We’ve seen capital outflows estimated to be about $35 billion per month this year. So perhaps weakening the renminbi will stem that outflow.”
A third reason for devaluation may also have to do with giving China a leading place among global currencies.
China wants the yuan to be part of the International Monetary Fund’s Special Drawing Rights (SDR) basket. Right now, just the U.S. dollar, the euro, the British pound and Japanese yen are in the SDR basket. Adding the yuan to the SDR basket would make China’s renminbi a global reserve currency. But the IMF wants China’s yuan to be more in line with the supply and demand forces of the markets.
“China is trying to work towards the liberalization of its currency that the IMF is looking for as it starts to consider whether China should be part of the SDR,” said Oliver.
He sees the devaluation benefiting Chinese equities in the long-term. In the past week, the Shanghai Composite Index (000001.SS) gained nearly 5%, though it is still 23% off from its all-time high of 5,166.35 set two months ago.
Two of the ETFs (ASHR and ASHS) Oliver’s group manages let U.S. investors buy into Chinese “A-shares,” a class of equities generally restricted to foreigners. A third one (CN) also includes Hong Kong “H-shares.”
“Anything that moves the currency back towards fair market value is a good thing,” said Oliver. “This is all representative of China supporting its economy by taking the action it needs to take. I think for Chinese stocks and Chinese investments this could be a good move.”
Since 2009, the firm’s funds have spent $770 million accumulating 35,000 lots.
By Bloomberg News
Photo: Bloomberg
John Paulson’s firm is selling a bulk of its real estate holdings.
Hedge-fund manager John Paulson, who made billions wagering against subprime mortgages, has started to profit from a U.S. housing bet that took longer to ripen: owning land.
After acquiring about 35,000 lots since 2009, Paulson & Co. shifted toward selling last year and is accelerating its disposition pace, according to Michael Barr, who manages the firm’s real estate. Paulson’s funds had invested $770 million, mostly in lots bought out of bankruptcies or other distressed sales, and acquired two dozen communities in Arizona, California, Colorado, Florida and Nevada.
“The whole thesis here was that land was the best way to play the housing recovery, and that thesis seems to be playing out,” Mr. Barr said in a telephone interview from New York. “In a downturn, land is the hardest-hit real estate asset. Then, in the recovery phase of the cycle, as home prices appreciate, land values appreciate more.”
Paulson—whose lot holdings put the firm almost on par with the 10th-largest U.S. homebuilder—is planning to slowly sell parcels in some projects where prices have rebounded sharply, while holding on to other properties. He’s joining other large land buyers who are selling into a housing market constrained by lot shortages after almost a decade of anemic construction.
Builders replenishing land holdings are finding that prices for finished lots across the U.S. jumped 57% since the bottom in 2009, according to data from John Burns Real Estate Consulting. In some hard-hit markets where distressed properties lured investors, values have more than doubled in the past six years.
Earlier sellers
Paulson is starting to sell relatively late compared with other firms that bought land after the crash, and price gains are now moderating. His firm’s real estate funds have 10 years to return principal to investors after closing, according to a report prepared for California’s Contra Costa County Employees’ Retirement Association, which invested with Paulson.
“Their competitive advantage is their longer-term horizon,” said John Burns, a housing consultant based in Irvine, California, who has done work for Paulson. “They were able to bid on land that most people thought would take a long time to recover, so there were very few bids on it.”
Angelo Gordon & Co., a New York-based firm with $27 billion under management, has sold or optioned about 80% of the 14,000 lots it acquired from 2008 to 2012, according to Louis Friedel, vice president of real estate acquisitions. Starwood Land Ventures, a unit of Barry Sternlicht’s Starwood Capital Group, has sold about half of the 20,000 lots it acquired since 2007 in California, Florida, Arizona and Colorado, Chief Executive Officer Mike Moser said.
Land ‘convexity’
GTIS Partners, which spent about $1 billion since 2009 to buy more than 35,000 lots in 27 markets, has been selling for double or quadruple the price it paid, said CEO Tom Shapiro.
“Land has a lot of convexity to it,” Shapiro said in a telephone interview. “If home prices go up 5 or 10%, land prices can go up 20 or 30%. You have to be careful because it also works on the way down, which is how people got really hurt.”
The housing crash pushed many developers and landowners into bankruptcy, giving investors the opportunity to buy large, unfinished master-planned communities for distressed prices. In 2012, for example, Paulson paid $17 million, or 6% of the outstanding debt, for a post-bankruptcy acquisition of 875 acres (354 hectares) in Lake Las Vegas, Nevada, according to the Contra Costa pension fund report.
That’s less than $20,000 an acre in a market where homebuilders now typically pay $400,000 to $450,000 an acre, said Dennis Smith, CEO of Home Builders Research, a Las Vegas consulting firm. Not all of that increase would turn into profits, because much of the Lake Las Vegas land is set aside for open space and Paulson invested in improvements, such as restoring a golf course.
Slowing gains
Paulson may face risks as prices moderate. Finished lot prices, after jumping as much as 28% in 2013, increased just 2% in the first quarter from a year earlier, according to John Burns Real Estate Consulting. Homebuilders are cutting back on land purchases after “aggressively” spending from 2010 to 2013, Barclays Capital Inc. said in a note this week.
Wheelock Street Capital, which bought 24,000 lots starting around the same time as Paulson, has been a steady seller, said Dan Green, principal at the real estate private equity firm.
“We wanted to get in and buy and enjoy the recovery and not hold until the top” of the market, Mr. Green said.
Builder expansion in locations further from urban areas may fuel demand for the types of lots Paulson owns. The new-home market is expected to grow over the next two years, Susan Maklari, an analyst with UBS Group AG, said in a note to clients Wednesday.
“The housing market is in the process of moving to more volume-based growth, driven by the re-emergence of the entry- level buyer,” Ms. Maklari wrote. “This reflects increasing construction activity further in the periphery, where it is easier for supply to meet demand.”
Master-planned communities can take years to liquidate. Paulson’s first targeted disposition locations include Belmont and Triple Creek in the Tampa, Florida, area; Southshore at Aurora and Crystal Lake outside of Denver; and Lake Las Vegas.
“It’s not because it’s time to get out, but because you’ve got to start to sell these larger, longer-term assets,” Mr. Barr said. “We still think we’re mid-cycle in most of our markets.”
As South Korea’s economy struggles, more funds seek higher returns outside of its country.
By Bloomberg News
Photo: Buck Ennis
Korean investors are now eyeing New York real estate.
South Korea’s biggest funds are hoping to get returns from Manhattan eluding them in Seoul.
Korea Post is the latest money manager from the nation to set up shop in New York to find real estate, private equity and hedge fund investments and may hire more people, its U.S. representative Chuljoong Jurng said. It follows National Pension Service and Korea Investment Corp., which have similar offices, chasing better returns from global alternative assets amid low yields at home.
Four interest-rate cuts over the past year haven’t been able to revive South Korea’s economy, which is growing at the slowest pace in two years. The record-low benchmark has stifled returns on bonds, with the government’s 10-year yield shrinking to its lowest ever in April. National Pension Service helped buy a Swedish shopping mall this year, while Shinhan Life Insurance Co. and Hyundai Marine & Fire Insurance Co. helped underwrite a $220 million loan to buy a Manhattan office tower. The buying spree follows similar moves by Chinese investors to park their dollars in New York real estate.
“With the continued low interest rates, it’s inevitable we’ll need to increase alternative investments to boost returns,” Mr. Jurng said. “As our assets under management keep growing, it’s become more important to get access to information and global investment trends for higher returns.”
Global hunt
State-run Korea Post, which oversees 106 trillion won ($89 billion), wants to diversify from stock and bond investments into other sorts of assets, Mr. Jurng said. He expects the new Manhattan office to improve deal sourcing and global research capabilities to help find such opportunities abroad.
Stocks and bonds are less reliable as hedges against each other, according to Kim Eun Gie, a Seoul-based alternative investments analyst at NH Investment & Securities Co. While the securities’ prices have usually been negatively correlated, they’re now moving in unison due to global monetary easing and that’s curbing the effects of diversifying, he said.
Korea’s asset managers have taken note. Their real estate holdings have surged 38% since the end of 2013 to 33.6 trillion won, Korea Financial Investment Association data show. Private equity funds raised 51.2 trillion won at the end of 2014 compared with 44 trillion won a year earlier, according to Korea’s Financial Supervisory Service.
“There aren’t enough alternative assets at home, forcing investors to look abroad,” NH Investment’s Kim said. “Unlike bonds or stocks, alternative investments are typically private, so it’s become essential to open overseas offices to broaden access to information.”
Getting older
Combined assets under management at Korea’s life insurance companies have almost doubled to 537 trillion won as of March 31 over the last five years as people save for retirement. By 2060, the elderly—defined as anyone over 65-years old—will make up 40 percent of the population, Statistics Korea data show.
Alternatives were the best-performing asset class last year for National Pension Service, South Korea’s biggest investor with 470 trillion won of assets. They returned 12.5%, which compared with a 5.25% overall gain. The fund plans to boost holdings of such assets to 11.5% by the end of next year from 9.9% at the end of 2014, it said in June.
National Pension Service, which has both London and New York offices, will also officially open a Singapore location in September to find Asian alternative opportunities, spokeswoman Hwang Ji Hye said.
Big role
“Overseas offices are playing a role in gathering new information and looking for valuable investment opportunities,” said Mr. Hwang. “We’ve been preparing for opening an office in Asia following the New York and London offices to build a strong overseas network.”
Korea Investment Corp., the nation’s $85 billion sovereign wealth fund, plans to almost double its share of alternative investments to 15% by year-end from 8% currently, and aims for 50% over the next five years, Chairman Ahn Hongchul said last month. Ahn expects longer-term returns of at least 10% if holdings rise above half of the portfolio.
It also operates in New York and London, where the focus is on both conventional and alternative assets. The fund plans to send more people from Seoul to those offices, largely to help assess alternative opportunities, said a company official.
“While stocks and bonds are financial assets, alternative assets are real investment, hedging against possible inflation going forward,” NH Investment’s Kim said. “To diversify investment portfolios and boost returns, the alternative investment would be an answer.
Sen. Charles Schumer shared his plan on how to fund the Hudson River tunnel project.
Sen. Charles Schumer on Tuesday proposed a new nonprofit development corporation to plan and finance the construction of new rail tunnels from New Jersey to New York City.
In a speech in Manhattan, the New York senator said that none of the existing transportation entities in the region has the wherewithal to pull off the project on its own. Until now, the project, known as Gateway, has been seen as an Amtrak undertaking coordinated with the Port Authority of New York and New Jersey, New Jersey Transit, the states of New York and New Jersey, New York City, and the Metropolitan Transportation Authority.
The goal is to expand train capacity into New York from New Jersey and the rest of the East Coast, known as the Northeast Corridor portion of the national rail system.
Mr. Schumer said the entire U.S. rail network between Washington and Boston could be disrupted and disabled if the project isn’t built. The network relies on two century-old, single-track tunnels under the Hudson River that allow trains to go in and out of Manhattan simultaneously. If one were shut down for repairs, traffic would be cut from 24 hourly trains to six.
A new two-track tunnel would cost an estimated $14 billion. Gov. Andrew Cuomo told federal officials last week that New York would need federal grants, not loans, to fund the project, which would take at least a decade to build. Amtrak has already spent $300 million on preparatory work.
“I commend Sen. Schumer for making these tunnels a national priority,” Mr. Cuomo said in a statement Tuesday. “We both agree that they will require significant federal investment and I look forward to working with him to move this critical project forward.”
Mr. Schumer’s proposal was also cheered by the General Contractors Association of New York, whose members would presumably do much of the work on such a project.
“Senator Schumer provided both a visionary leadership and a practical road-map for building Gateway,” said the group’s executive director, Denise Richardson. “It is an essential regional and national project that has been languishing for too long. Without it, the economies of all the states along the entire Northeast Corridor could revert to their 19th-century status.”
Plans are in the works for two big development projects that could rise between Alma Realty’s Astoria Cove project (the white buildings shown to the left in the rendering) and the Durst Org.’s Halletts Point project (the grey buildings shown to the right).
Two large-scale developments are being planned for more than seven areas of Queens waterfront,Crain’s has learned. And along with two other massive projects—known as Halletts Point and Astoria Cove—the mixed-use complexes are set to transform part of a gritty peninsula west of Astoria into a new community along the East River.
The two sites are separately owned plots north of 26th Avenue between Second and Fourth streets. Together, they are bigger than a city block. They sit between Alma Realty’s 1,723-unit Astoria Cove project, which was approved last year, a park called Whitey Ford Field, and the 2,400-unit Halletts Point, which the Durst Organization is developing after purchasing a majority stake in the venture from Lincoln Equities.
“The important thing here is there’s an opportunity to integrate the entire waterfront in that part of Astoria,” said Jay Valgora, principal at Studio V Architecture, which is drawing up the preliminary plans for both projects.
When complete, they will fill in some of the missing pieces of a waterfront greenway that will run all the way from Astoria Park in the north down to Rainey Park in the south, a stretch of about 2.5 miles. Because the designs are preliminary, the precise density and height have not been decided, according to Mr. Valgora. But he noted whatever mixed-use projects rise on the sites would be on a scale commensurate with the neighboring complexes already in the works, which have towers topping out at around 32 stories.
In addition to the two new projects, Studio V has done the master plans for both the Durst and Alma developments, meaning the firm is almost singlehandedly redesigning the peninsula, which is also home to a public-housing project called Astoria Houses.
“We hope this can be a new model for an equitable and sustainable community,” Mr. Valgora said.
Along with thousands of units of market-rate and affordable housing, plans call for new schools, retail and amenity spaces, a ferry landing and new streets connecting the community to the rest of the borough.
Durst has also announced that the firm plans to generate its own power on-site and build a water treatment plant to ease the burden on the city’s frequently overwhelmed sewer system.
Because the two parcels are zoned for manufacturing, the owners will need to apply to the city to allow housing to be built there, which requires a trip through the public-review process. The developers and Studio V are in preliminary talks with stakeholders as to what might be built on the site.
One of the city’s largest commercial landlords is mulling a residential project in lower Manhattan.
Vornado Realty Trust, which owns more than two dozen office properties in the city, is considering a residential conversion of either a portion or all of the 27-story, 473,000-square-foot downtown office building at 20 Broad St.
Sources familiar with the decision say Vornado may still choose to maintain the property as an office building rather than repurpose it as apartment space, which would likely cost tens of millions of dollars to create.
Vornado is exploring options for the property because, according to recent reports, the building’s biggest office tenant, the New York Stock Exchange, which leases nearly 400,000 square feet, is set to leave next year.
However, converting the property into residential won’t be easy. It may be difficult to lay out the building’s lower floors, which are larger than the spaces at the top of the tiered property, for apartments, sources said. An even bigger hurdle is the building’s complex ownership structure.
The New York Stock Exchange used to both own and occupy 20 Broad St.. Several years ago it ground leased the property to Vornado, while still remaining a tenant at the building.
Residential condo units are difficult to sell in ground-leased properties because the building’s ownership eventually reverts back to the owner of the ground. Apartment buyers are wary of that arrangement because it means their units will not be theirs in perpetuity and the land may also become less valuable as the ground lease nears expiration.
But now that NYSE is leaving 20 Broad, Vornado could purchase the building outright from NYSE and pursue the conversion. Some say Vornado could tear the existing building down and erect a new residential tower in its place.
Several owners have converted downtown office buildings into residential space or erected apartments from the ground up. Alchemy Properties, for instance, is converting the upper floors of the Woolworth Building into luxury apartments. And last week, Chinese firm Oceanwide Holdingsreached a deal to purchase 80 South St., a development site that can accommodate a 1,000-foot tall tower with residential space.
Though Vornado is predominantly an owner of office and retail, the firm also has built high-end residential space. The company is developing one of the highest profile condo projects in the city, a nearly 1,000-foot tall tower with soaring Central Park views at 220 Central Park South. Vornado revealed in a recent earnings call that it has sold $1.1 billion worth of apartments in just a few weeks of opening the property to the market.
What a 1,000-foot tower would look like at the development site near South Street Seaport.
A Chinese investment firm announced it has agreed to pay $390 million for a development site near the South Street Seaport, paving the way for the erection of yet another super-tall skyscraper in a city that is quickly sprouting 1,000-foot plus tall towers.
The Beijing-based investment company China Oceanwide Holdings released a statement confirming that a U.S. subsidiary of the firm is in contract to acquire both the site at 80 South St. and a neighboring parcel at 163 Front St. from the Howard Hughes Corp.—the would-be developer of the nearby South Street Seaport.
A roughly 820,000 square foot building, with about 440,000 square feet of residential and 380,000 square feet of commercial space, can be developed on the combined site, which Howard Hughes bought in two separate deals and assembled together over the past year, according to city records.
Chinese real estate investors have increasingly poured money into the city. In late 2013, the Shanghai-based company Fosun, purchased the nearby downtown office building 1 Chase Manhattan Plaza for $725 million, subsequently renaming it 28 Liberty St. Earlier this week it won approval to create retail space it plans to spend $200 million building under the property.
Other Chinese firms have sought to build tall as well. Kaufu Properties reached a deal in recent weeks to buy a development site on East 60th Street that can potentially accommodate a 1,000-foot tall residential tower for more than $300 million, according to reports.
There has been a boom of ultra-tall towers in the city in general. As Crain’s reported August 5, developers Michael Stern and Joe Chetrit have struck a $90 million deal that will allow them to raise a tower in downtown Brooklyn that could be nearly as tall as the Empire State Building. That spire will be the tallest outside of Manhattan and possibly one of the highest in the entire city.
The site at 80 South St. has long been envisioned as a location for a soaring structure. Construction manager and developer Frank Sciame planned a unique-looking tower there designed by architect Santiago Calatrava, but eventually abandoned the complex project. CBRE brokers Darcy Stacom, Bill Shanahan and Paul Leibowitz handled the sale on behalf of the Howard Hughes.
A map highlighting the two acquired sites near South Street Seaport
Atlanta (CNN)Donald Trump’s latest controversial comment was so alarming that he’s been disinvited from a conservative gathering Saturday in Atlanta.
At issue: Trump’s comments on “CNN Tonight” about Fox News’ Megyn Kelly, who moderated a GOP presidential candidate debate Thursday night.
During the debate, she pressed Trump aboutmisogynistic, sexist comments he made in the past, such as calling some women “fat pigs, dogs, slobs, and disgusting animals.”
Trump slammed Kelly, saying her questions were “ridiculous” and “off-base.”
“You could see there was blood coming out of her eyes,” Trump told CNN’s Don Lemon on Friday night. “Blood coming out of her wherever.”
That remark crossed the line, said RedState.com editor Erick Erickson. He disinvited Trump from the RedState Gathering, a conservative event featuring GOP presidential hopefuls this weekend in Atlanta. Trump was scheduled to give the keynote speech Saturday night.
“I have tried to give a great deal of latitude to Donald Trump in his run for the presidency,” Erickson wrote.
“He is not a professional politician and is known for being a blunt talker. He connects with so much of the anger in the Republican base and is not afraid to be outspoken on a lot of issues. But there are even lines blunt talkers and unprofessional politicians should not cross. Decency is one of those lines.”
Republican stalwart and Fox owner Rupert Murdoch praised debate moderators Kelly, Bret Baier and Chris Wallace — while criticizing his friend Trump.
“Friend Donald has to learn this is public life,” Murdoch tweeted.
Erickson said while he likes Trump personally, “I just don’t want someone on stage who gets a hostile question from a lady and his first inclination is to imply it was hormonal. It just was wrong.”
But the Trump campaign fired back, saying “this is just another example of weakness through being politically correct.”
“For all of the people who were looking forward to Mr. Trump coming, we will miss you,” his campaign said. “Blame Erick Erickson, your weak and pathetic leader. We’ll now be doing another campaign stop at another location.”
It was not immediately clear where that new campaign stop will be.
But the RedState Gathering will go on without Trump. This year, the annual event features fellow GOP presidential candidates Jeb Bush, Chris Christie, Ted Cruz, Carly Fiorina, Mike Huckabee, Bobby Jindal, Rick Perry, Marco Rubio and Scott Walker.
As for the newly vacant spot at the RedState Gathering, Erickson has invited Kelly to replace Trump.
